| 2-July-10 | 25-June-10 | Weekly% Change | YTD% Change | 12 month %Change | ||
| S&P 500 Index | 1,022.58 | 1,076.76 | -5.03% | -8.30% | 14.07% | |
| Dow Jones Industrial Average | 9,686.48 | 10,143.81 | -4.51% | -7.11% | 16.98% | |
| Nasdaq Composite | 2,091.79 | 2,223.48 | -5.92% | -7.82% | 16.44% | |
| Wilshire 5000 | 10,654.14 | 11,253.31 | -5.32% | -7.33% | 15.79% | |
| MSCI EAFE (Intl.) | 1,347.38 | 1,395.48 | -3.45% | -14.76% | 4.03% | |
| 10 Year U. S. Treasury Yield | 2.98% | 3.14% | -5.10% | NA | NA | |
| 30 year U.S. Treasury Yield | 3.94% | 4.10% | -3.90% | NA | NA | |
I hope you had a wonderful Independence Day. I know that I caught up on plenty of rest and relaxation while leaving a little time for celebration as well. Prior to the celebrations, though, investor nervousness took major domestic stock markets to new yearly lows. While unwelcomed, this wasn’t a huge surprise. After all, traders focused on the short term usually sell prior to long holiday weekends and volumes decline.
I heard an interesting quote last week from famed real estate investor, Sam Zell. You may remember that he sold his firm, Equity Office Properties, shortly before the real estate bubble burst in 2007. When discussing the market (S&P 500) on CNBC he said, “With a clearer picture of tomorrow, the stock market is cheap. With an uncertain view of tomorrow, the stock market is problematical.”
This is really the crux of the issue today. On most metrics, stocks are generally cheap or at least in line with historical averages. If we get average growth over time going forward, investors will probably be compensated well for investing. “If” is the key word, however. If growth is slower than expected, or if world economies “double dip” back into recession, stocks may not be as cheap as they appear at first glance.
This brings us back to one of the most basic tenets of investing—know your time horizon. Investors who have a time horizon of less than a decade who need average or above average returns may have a bumpy ride. This doesn’t mean that their goals are unachievable. It simply means that returns will probably be more volatile in the making, and that the range of possible outcomes is wider due to the large levels of uncertainty in the markets and economy.
Because long-term returns from investing in stocks are correlated with valuations at the time of purchase, investors with time horizons that are longer than a decade should probably pay attention to valuation more than those with shorter time frames. Those investors have the time to ride out the volatility and uncertainty. They can also use the sell-offs to dollar-cost-average into stocks at even lower valuations.
Of course, while I know many of my readers, I do not personally know all of you, so the themes discussed above are just that—themes. They are based on a lot of academic and real-world studies, but in the end, not every theme works for every person. Only you and your advisor know what is appropriate for you, so please discuss all investment strategies with your advisor prior to making decisions that will affect your financial future.
Coming Up: This holiday-shortened week will be a bit light on economic news. The most watched release will probably be Thursday’s weekly jobless claims, which is expected to come in around 460,000. This is little changed from last week’s reading. Earnings season, however, is just around the corner, and we’ll have plenty to talk about then.
The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.
All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 10.111.c.07.10